﻿The Coming Seismic Shift

​in American Politics

The Coming Seismic Shift in American Politics

To review, my thesis is that we are experiencing a transitional phase similar to what we went through in the late 1800’s and again as we entered the second quarter of the 1900’s. The three disruptive factors that dominated those periods are also paramount today. They are:

A leap in technological innovation resulting in the large-scale displacement of workers from the sector that employs roughly 80% of the population.

Urbanization on a globally significant scale.

A spike in wealth disparity.

I have detailed the derivative effects of these disruptive elements in previous editions of Macro Radar. All of them being highly predictable thanks to those previous episodes, and perfectly rational when examined through the lens of behavior analysis. The effects include, but are not limited to:

An extension of educational careers (currently resulting in higher college attendance and lower participation rates among the youngest workers).

An initial spike in raw material prices followed by an extended period of depressed prices.

​Before diving into another of those derivative effects, let’s consider why it’s worth our time. When we know what is happening at the highest level, we can understand the relationships between seemingly disconnected events further down the line. Perhaps most importantly, when we know what is driving things, we are better able to identify the key elements that will lead to a potential reversal of the most powerful trends. When we know what those triggers are and have a high degree of confidence that they are not in danger of materializing, then we can have a high degree of confidence in the right positions to have in our portfolios. The result is a lower probability of being stopped out by randomly occurring data and/or events.

In this edition, an explanation as to why another radical shift in the two party political system is in the works, similar to what we experienced in the late 1800’s and the second quarter of the 1900’s. Of all the derivative effects, this one is the most important to understand and to watch for progress, because in the previous episodes, it was the one that triggered the reversal of the biggest trends. If we learned anything from the previous eras it is that the only thing that can be as disruptive as a leap in technological innovation is a decisive shift in political will. With that said, let’s dive into the evidence.

First, let’s review the previous eras as they relate to the political party system. In the 1890’s, the central issues of debate shifted in American politics. It was the beginning of the Progressive Era, which interestingly was championed by the Republican Party and ushered in what is now known as the “Fourth Party System”. The key characteristics of the new political regime? More government regulation, increased role of labor unions, immigration controls, worker’s rights and an overhaul of the banking system. Remember, this didn’t happen in a vacuum. It was the result of those 3 key factors listed at the top of this piece and irrevocably tied to the other derivative issues as well.

In other words, the introduction of the gas powered farming machinery and other incredibly disruptive technological innovations which displaced workers employed in the agricultural sector, at a time when it was responsible for 80% of total employment, was a factor. The extreme rise in wealth disparity and consolidation of power were factors. The drop in participation rates among the youngest workers was a factor. Lower wages, high underemployment, and rising suicide rates, were all factors.​Fast forward to the second quarter of the 1900’s and we come to the emergence of the New Deal Coalition and the introduction of the Fifth Party System, this time championed by the Democrats. Different party, but driving a similarly progressive movement. Again, it didn’t happen in a vacuum. The leap forward in technological innovation that led to the displacement of workers in the manufacturing sector, which accounted for roughly 80% of employment at the time, was a factor. It was also in response to an extraordinary rise in wealth disparity, a consolidation of power, lower wages, high underemployment, and rising suicide rates.

It’s important to recognize that in each of those previous eras, the shift in the political landscape resulted in very disruptive policy adjustments. Whether you think they were good changes or even warranted, is of little consequence. What matters is that without that shift, the well established trends that had been in place would not have been reversed. I believe the evidence suggests that things will be no different this time around, and in fact, we are already seeing signs of that shift, particularly in those same key areas as the previous two periods.

Take a look at the results from the Pew Research Center’s big report (see charts), “Trends in American Values: 1987-2012” and make note of where the big shifts have occurred in the divide between members of the two main parties. What you’ll find is quite striking. There is actually very little divide over the issues we normally think of, but a fairly radical shift in those associated with inequality, labor and the role of government. Sound familiar?

While some might say that movements like Occupy Wall Street haven’t moved the needle, or worse, they have succeeded in bringing wealth disparity more to the fore. In spite of great opposition, Obama was able to push through his landmark healthcare reform. On the other side, the Tea Party and its attempt to make tax reform a call to the masses has begun to fizzle, having converted more Republicans than Democrats along the way. ​Despite the recent win for the Republican party in the interim elections, it is clear the direction the political debate is headed. However, what ultimately matters to us from an investment perspective is that we’re not at the tipping point yet. The trends that have been solidly in place, remain so. At least for now.

About the AuthorFor nearly thirty years, Stephen Duneier has applied cognitive science to investment and business management. The result has been the turnaround of numerous institutional trading businesses, career best returns for experienced portfolio managers who have adopted his methods, the development of a $1.25 billion dollar hedge fund and 20.3% average annualized returns as a global macro portfolio manager.

Mr. Duneier teaches graduate courses on Decision﻿ Analysis in the College of Engineering, as well as Behavioral Investing, at the University of California.

Through Bija Advisors' coaching, workshops and publications, he helps the world's most successful and experienced investment managers improve performance by applying proven, proprietary decision-making methods to their own processes.

As a speaker, Stephen has delivered informative and inspirational talks to audiences around the world for more than 20 years on topics including global macro economic themes, how cognitive science can improve performance and the keys to living a more deliberate life. Each is delivered via highly entertaining stories that inevitably lead to further conversation, and ultimately, better results.

Stephen Duneier was formerly Global Head of Currency Option Trading at Bank of America, Managing Director in charge of Emerging Markets at AIG International and founding partner of award winning hedge funds, Grant Capital Partners and Bija Capital Management.

His artwork has been featured in international publications and on television programs around the world, is represented by the renowned gallery, Sullivan Goss and earned him more than 50,000 followers across social media. As Commissioner of the League of Professional Educators, Duneier is using cognitive science to alter the landscape of American K-12 education. He received his master's degree in finance and economics from New York University's Stern School of Business. Bija Advisors LLCIn publishing research, Bija Advisors LLC is not soliciting any action based upon it. Bija Advisors LLC’s publications contain material based upon publicly available information, obtained from sources that we consider reliable. However, Bija Advisors LLC does not represent that it is accurate and it should not be relied on as such. Opinions expressed are current opinions as of the date appearing on Bija Advisors LLC’s publications only. All forecasts and statements about the future, even if presented as fact, should be treated as judgments, and neither Bija Advisors LLC nor its partners can be held responsible for any failure of those judgments to prove accurate. It should be assumed that, from time to time, Bija Advisors LLC and its partners will hold investments in securities and other positions, in equity, bond, currency and commodities markets, from which they will benefit if the forecasts and judgments about the future presented in this document do prove to be accurate. Bija Advisors LLC is not liable for any loss or damage resulting from the use of its product.